BPOs outpouring

Date:   Saturday , April 30, 2005

History repeats itself and same trends resurface in different forms. If India was known for providing knowledge to the world in ancient times, in this era the nation provides intellectual outsourcing services. Outsourcing draws a healthy $17.2 billion to the Indian shore, 43 percent of global revenue, and Business Process Outsourcing (BPO) is still spreading across Indian cities like a wildfire.

India presents a very good value proposition for outsourcers as they can reduce the process costs by 40 to 60 percent and labor cost arbitrage is likely to exist for the next 20 to 30 years. Being outsourcer’s choice helps to focus on core activity, reducing costs, improving operational quality, achieving high productivity and removing business risks.

The nation facilitates world-class technology and efficient delivery mechanisms to ensure clients receive cost effective solutions for all their BPO needs.

Indian universities and colleges assist by producing two million graduates annually. Indian universities produce 120,000 engineers as opposed to 63,000 in the U.S. The nation clearly leverages its English speaking and IT savvy workforce and offers the services at half the market cost. Lower establishment costs, improving telecommunications infrastructure and government support for IT and BPO industry have only intensified the rush of multinationals setting up their offshore centers.

Big cities like Gurgaon, Bangalore, Chennai and Kolkata are at the race’s forefront while tier-two cities like Pune and Kochi are quickly gaining pace.

Though this paints a bright picture for the Indian economy, the darker side of poor infrastructure and services cannot be neglected. According Ravindra Datar, a Gartner analyst, “Basic infrastructure isn’t there and when you talk about infrastructure you talk about the quality and the availability of connectivity, power and transport infrastructures.”

Besides infrastructure, every city has its own unique set of problems.

Bangalore clearly leads with majority of multinationals opening up their BPO centers in the city. With more and more companies causing population influx, infrastructure and services is a cause for concern. As Bangalore is reaching saturation, companies are seeking for new venues like Chennai, Kochi, Pune and Kolkata. Chennai has attracted a large number of BPOs in the last six months, because it is one of India’s big cities.

The availability of talent is good and people are looking for alternatives to Bangalore because there are issues about the infrastructure availability. Bangalore is also becoming crowded and people staying in Bangalore have grown exponentially as compared to the infrastructure that was initially available.

“When I am talking about infrastructure I am talking about traffic jam as much about power shortage and connectivity issues,” adds Datar.
One issue of concern among all players is the security and availability of information. The European customers are especially concerned about the kind of data flowing into their company from their offshore centers. There is a need for the state and central government to establish a legal framework and protect the requirements on security.

Political instability and unrest in a State makes MNCs averse and vary before investing.
Even the metropolitan city of Mumbai is not a favored destination, as it’s a big city stigmatized by both high infrastructure and service costs. Though Pune has an advantage of being close to Mumbai, it is still not a valuable option as the intercity air services are not on par to the South. Even State politics has an impact on the choice of a city.

Kolkata, capital of the communist State of West Bengal, was not a favorable destination until the communist government made special amendments to attract multinationals.

For multinationals, skill sets of the population and lower cost is as important as State politics. As lower costs are a common feature of all second and third world countries, India is quickly losing its pole position as other south East Asian countries are overtaking with their multilingual advantages. Indian graduates are well known for their English speaking capabilities, but English knowledge would not suffice if a multinational were examining the pan-Asian region. Very few Indians are experts in Asian languages like Chinese, Korean and Japanese.

When seeking an Asia-specific region, language skills available in India to serve the Asian market are not available.

At the same time, the Chinese have expertise in speaking their language as well as Japanese and even Korean. Even Australia has a large number of people of Asian origin who can service the Pan Asian region. People who came into India from the U.S for employment don’t regard India as beneficial when it comes to serving the Pan Asian region. The companies are subsequently moving out to other Asia Pacific regions. Some of the MNCs, especially among service providers like the Citel and Delitek, are using India as a base for their global requirements.

They have bases in other Asian countries as well, because of the availability of resources for Asian language requirements. For example, Malaysia is emerging as a good place for all Asia Pacific-specific support. Another reason is availability of staff for good European languages. Indians are not familiar with most of European languages. On that front, Mauritius is emerging as a preferred destination.

As other South Asian countries are tailoring their facilities to attract MNCs, India can still bank on its favorable time lag (12 hours with U.S and 5 hours with Europe), to provide continuous service. Even Indian resources with experience of financial and legal systems are beneficial for MNCs as they are similar to the West. Recently Nasscom revealed a projection of 41.7 percent yearly growth in ITES-BPO exports which is a sure sign of sustained industry growth.